TRADEWEB MARKETS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by the forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10Q. Overview We are a leader in building and operating electronic marketplaces for our global network of clients across the financial ecosystem. Our network is comprised of clients across the institutional, wholesale and retail client sectors, including many of the largest global asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading firms and retail brokerage and financial advisory firms as well as regional dealers. Our marketplaces facilitate trading across a range of asset classes, including rates, credit, equities and money markets. We are a global company serving clients in over 65 countries with offices inNorth America ,Europe andAsia . We believe our proprietary technology and culture of collaborative innovation allow us to adapt our offerings to enter new markets, create new platforms and solutions and adjust to regulations quickly and efficiently. We support our clients by providing solutions across the trade lifecycle, including pre-trade, execution, post-trade and data. Our institutional client sector serves institutional investors in over 40 markets across 25 currencies, and in over 65 countries around the globe. We connect institutional investors with pools of liquidity using our flexible order and trading systems. Our clients trust the integrity of our markets and recognize the value they get by trading electronically: enhanced transparency, competitive pricing, efficient trade execution and regulatory compliance. In our wholesale client sector, we provide a broad range of electronic, voice and hybrid platforms to more than 300 dealers and financial institutions with more than 100 actively trading on our electronic or hybrid markets with ourDealerweb platform. This platform was launched in 2008 following the acquisition of inter-dealer brokerHilliard Farber & Co., Inc. In 2011, we acquired the brokerage assets ofRafferty Capital Markets . Today,Dealerweb actively competes across a range of rates, credit, money markets, derivatives and equity markets. In our retail client sector, we provide advanced trading solutions for financial advisory firms and traders with ourTradeweb Direct platform. We entered the retail sector in 2006 and launched ourTradeweb Direct platform following the 2013 acquisition ofBondDesk Group LLC , which was built to bring innovation and efficiency to the wealth management community.Tradeweb Direct has provided financial advisory firms access to live offerings, accurate pricing in the marketplace and fast execution. Our markets are large and growing. Electronic trading continues to increase across the markets in which we operate as a result of market demand for greater transparency, higher execution quality, operational efficiency and lower costs, as well as regulatory changes. We believe our deep client relationships, asset class breadth, geographic reach, regulatory knowledge and scalable technology position us to continue to be at the forefront of the evolution of electronic trading. Our platforms provide transparent, efficient, cost-effective and compliant trading solutions across multiple products, regions and regulatory regimes. As market participants seek to trade across multiple asset classes, reduce their costs of trading and increase the effectiveness of their trading, including through the use of data and analytics, we believe the demand for our platforms and electronic trading solutions will continue to grow. Trends and Other Factors Impacting Our Performance COVID-19 Since the onset of the COVID-19 pandemic, we have been focused on keeping our employees safe, helping our clients stay connected, and ensuring our markets operate efficiently through this period of unprecedented market volatility. We have implemented a series of measures to protect the health and safety of our employees. Bymid-March 2020 , nearly all of our employees around the world were working remotely. Most continue to work remotely. 34 -------------------------------------------------------------------------------- Table of Contents In light of the market volatility and economic disruption that has arisen in the wake of the pandemic, we have worked closely with our clients to provide flexible, stable, resilient and secure access to our platforms across our multi-asset offerings so they can reliably manage their core cash and derivatives needs in the diverse geographic, product and customer sector markets we serve. Our employees and clients together have adapted to working remotely. We believe the strong volumes we experienced on our platforms inMarch 2020 and since are reflective of these factors. The global spread of the COVID-19 pandemic is complex and rapidly-evolving, with authorities around the world implementing numerous measures to try to contain or prevent the virus, such as travel bans and restrictions, social distancing, quarantines, shelter in place, stay at home or lockdown orders, business limitations and shutdowns, and the distribution of vaccines. While we have safely reopened our offices with capacity limitations consistent with local guidelines, we remain confident that we can continue to maintain business continuity, serve our clients and provide efficient execution in a virtual environment as necessary. In addition, we believe that we have sufficient liquidity and flexibility to operate during any future disruptions caused by COVID-19. We currently expect any future disruptive impact of COVID-19 on our business to be temporary and are determined to continue to minimize such impact. Although we have implemented risk management and contingency plans and taken preventive measures and other precautions, our efforts to mitigate the effects of any disruptions may prove to be inadequate. Due to the uncertainty of the duration and severity of COVID-19, the speed with which this pandemic has developed and persists, the uncertainty as to what governmental measures may yet be taken in response to the pandemic and the unpredictable effect on our business, our employees and our clients, we are not able to reasonably estimate the extent of any potential impact of COVID-19 on our financial condition or results of operations at this time, but the impact could potentially be material. Even after the COVID-19 outbreak has subsided, we may continue to experience impacts to our business as a result of the virus' global economic impact and any recession that has occurred or may occur in the future. Further, as the COVID-19 situation is unprecedented and continuously evolving, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or in a manner that we currently do not consider to present significant risks to our operations. As the COVID-19 pandemic continues, it may also have the effect of heightening many of the risks described in "Item 1A. Risk Factors" in Part I of our 2020 Form 10-K, including, but not limited to, those relating to changes in economic, political, social and market conditions and the impact of these changes on trading volumes; consolidation and concentration in the financial services industry; our dependence on dealer clients; systems failures, interruptions, delays in services, cybersecurity incidents, unforeseen or catastrophic events and any resulting interruptions; our international operations; and our dependence on our senior management team and other qualified personnel. Economic Environment Our business is impacted by the overall market activity and, in particular, trading volumes and market volatility. Lower volatility is correlated to lower liquidity, which may result in lower trading volume for our clients and may negatively impact our operating performance. Factors that may impact market activity during the remainder of 2021 include, among other things, economic, political and social conditions, legislative, regulatory or government policy changes and health concerns associated with COVID-19. As a result, our business is sensitive to slow trading environments and the continuity of conservative monetary policies of central banks internationally, which tend to lessen volatility. While our business is impacted by the overall activity of the market and market volatility, our revenues consist of a mix of fixed and variable fees that partially mitigates this impact. More importantly, we are actively engaged in the further electronification of trading activities, which will help mitigate this impact as we believe secular growth trends can partially offset market volatility risk. 35 -------------------------------------------------------------------------------- Table of Contents Regulatory Environment Our business is subject to extensive regulations inthe United States and internationally, which may expose us to significant regulatory risk and cause additional legal costs to ensure compliance. The existing legal framework that governs the financial markets is periodically reviewed and amended, resulting in enforcement of new laws and regulations that apply to our business. The current regulatory environment inthe United States may be subject to future legislative changes driven by the new administration. The impact of any reform efforts on us and our operations remains uncertain. As a result of theUK's withdrawal from the EU ("Brexit"), which occurred onJanuary 31, 2020 , and the end of theUK -EU transition period, which occurred onDecember 31, 2020 , we are currently subject to two separate and distinct legal regimes inEurope . We have incurred additional costs to establish a new regulated subsidiary inthe Netherlands , and over time there may be a divergence of regulatory requirements as between theUK and EU. Compliance with regulations may require us to dedicate additional financial and operational resources, which may adversely affect our profitability. In addition, compliance with regulations may require our clients to dedicate significant financial and operational resources, which may negatively affect their ability to pay our fees and use our platforms and, as a result, our profitability. However, under certain circumstances regulation may increase demand for our platforms and solutions, and we believe we are well positioned to benefit from any potential increased electronification due to regulatory changes as market participants seek platforms that meet regulatory requirements and solutions that help them comply with their regulatory obligations. For example, our 2018 revenue increased due in part to higher trading volumes as a result of, and the introduction of our new APA service in connection with, the implementation of MiFID II inJanuary 2018 . Competitive Environment We and our competitors compete to introduce innovations in market structure and new electronic trading capabilities. While we endeavor to be a leader in innovation, new trading capabilities of our competitors are also adopted by market participants. On the one hand, this increases liquidity and electronification for all participants, but it also puts pressure on us to further invest in our technology and to innovate to ensure the continued growth of our network of clients and continued improvement of liquidity, electronic processing and pricing on our platforms. Our ability to compete is influenced by key factors such as (i) developments in trading platforms and solutions, (ii) the liquidity we provide on transactions, (iii) the transaction costs we incur in providing our solutions, (iv) the efficiency in execution of transactions on our platforms, (v) our ability to hire and retain talent and (vi) our ability to maintain the security of our platforms and solutions. Our competitive position is also influenced by the familiarity and integration of our clients with our electronic, voice and hybrid systems. When either a client wants to trade in a new product or we want to introduce a new product, trading protocol or other solution, we believe we benefit from our clients' familiarity with our offerings as well as our integration into their order management systems and back offices. Technology and Cybersecurity Environment Our business and its success are largely impacted by the introduction of increasingly complex and sophisticated technology systems and infrastructures and new business models. Offering specialized trading venues and solutions through the development of new and enhanced platforms is essential to maintaining our level of competitiveness in the market and attracting new clients seeking platforms that provide advanced automation and better liquidity. We believe we will continue to increase demand for our platforms and solutions and the volume of transactions on our platforms, and thereby enhance our client relationships, by responding to new trading and information requirements by utilizing technological advances and emerging industry standards and practices in an effective and efficient way. We plan to continue to focus on and invest in technology infrastructure initiatives and continually improve and expand our platforms and solutions to further enhance our market position. We experience cyber-threats and attempted security breaches. If these were successful, these cybersecurity incidents could impact revenue and operating income and increase costs. We therefore continue to make investments, which may result in increased costs, to strengthen our cybersecurity measures. Foreign Currency Exchange Rate Environment We earn revenues, pay expenses, hold assets and incur liabilities in currencies other than theU.S. dollar. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations from period to period. In particular, fluctuations in exchange rates for non-U.S. dollar currencies may reduce theU.S. dollar value of revenues, earnings and cash flows we receive from non-U.S. markets, increase our operating expenses (as measured inU.S. dollars) in those markets, negatively impact our competitiveness in those markets or otherwise adversely impact our results of operations or financial condition. Future fluctuations of foreign currency exchange rates and their impact on our results of operations and financial condition are inherently uncertain. As we continue to grow the size of our global operations, these fluctuations may be material. See Part I, Item 3. - "Quantitative and Qualitative Disclosures About Market Risk- Foreign Currency and Derivative Risk" elsewhere in this Quarterly Report on Form 10-Q. 36 -------------------------------------------------------------------------------- Table of Contents Taxation In connection with the Reorganization Transactions, we became the sole manager ofTWM LLC . As a result, beginning with the second quarter of 2019, we became subject toU.S. federal, state and local income taxes with respect to our allocable share of any taxable income ofTWM LLC and are taxed at prevailing corporate tax rates. Our actual effective tax rate is impacted by our ownership share ofTWM LLC , which will increase over time primarily as theContinuing LLC Owners redeem or exchange their LLC Interests for shares of Class A common stock or Class B common stock, as applicable, or as we purchase LLC Interests from the Continuing LLC Owners. In addition to tax expenses, we also incur expenses related to our operations. Furthermore, in connection with the IPO, we entered into the Tax Receivable Agreement pursuant to which we began to make payments inJanuary 2021 , and we expect future payments to be significant. We intend to causeTWM LLC to make distributions in an amount sufficient to allow us to pay our tax obligations, operating expenses, including payments under the Tax Receivable Agreement, and our quarterly cash dividends, as and when declared by our board of directors. Components of our Results of Operations Revenues Our revenue is derived primarily from transaction fees, subscription fees, commissions and market data fees. We believe that revenue is the key driver of our operating performance and therefore we utilize it to assess our business on a period by period basis. Transaction Fees and Commissions We earn transaction fees from transactions executed on our trading platforms through various fee plans. Transaction fees are generated on both a variable and fixed price basis and vary by geographic region, product type and trade size. For most of our products, clients pay both fixed minimum monthly transaction fees and variable transaction fees on a per transaction basis in excess of the monthly minimum. For certain of our products, clients also pay a subscription fee in addition to the minimum monthly transaction fee. For other products, instead of a minimum monthly transaction fee, clients pay a subscription fee and variable or fixed transaction fees on a per transaction basis. For variable transaction fees, we charge clients fees based on the mix of products traded and the volume of transactions executed. Transaction volume is determined by using either a measure of the notional volume of the products traded or a count of the number of trades. We typically charge higher fees for products that are less actively traded. In addition, because transaction fees are sometimes subject to fee plans with tiered pricing based on product mix, volume, monthly minimums and monthly maximum fee caps, average transaction fees per million generated for a client may vary each month depending on the mix of products and volume traded. Furthermore, because transaction fees vary by geographic region, product type and trade size, our revenues may not correlate with volume growth. We earn commission revenue from our electronic and voice brokerage services on a riskless principal basis. Riskless principal revenues are derived on matched principal transactions where revenues are earned on the spread between the buy and sell price of the transacted product. For TBA-MBS,U.S. treasury and repurchase agreement transactions executed by our wholesale clients, we also generate revenue from fixed commissions that are generally invoiced monthly. Subscription Fees We earn subscription fees primarily for granting clients access to our markets for trading and market data. For a limited number of products, we only charge subscription fees and no transaction fees or commissions. Subscription fees are generally generated on a fixed price basis. For purposes of our discussion of our results of operations, we include Refinitiv (formerly Thomson Reuters) market data fees in subscription fees. We earn fixed license fees from our market data license agreement with Refinitiv. We also earn royalties from Refinitiv for referrals of new Eikon (a Refinitiv data platform) customers based on customer conversion rates. Royalties may fluctuate from period to period depending on the numbers of customer conversions achieved by Refinitiv during the applicable royalty fee earning period, which is typically five years from the date of the initial referral. 37 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Employee Compensation and Benefits Employee compensation and benefits expense consists of wages, employee benefits, bonuses, commissions, stock-based compensation cost and related taxes. Factors that influence employee compensation and benefits expense include revenue and earnings growth, hiring new employees and trading activity which generates broker commissions. We expect employee compensation and benefits expense to increase as we hire additional employees and as our revenues and earnings grow. As a result, employee compensation and benefits can vary from period to period. Depreciation and Amortization Depreciation and amortization expense consists of costs relating to the depreciation and amortization of other intangible assets, acquired and internally developed software, leasehold improvements, furniture and equipment. General and Administrative General and administrative expense consists of travel and entertainment, marketing, value-added taxes, state use taxes, foreign currency transaction gains and losses, gains and losses on foreign currency forward contracts entered into for foreign exchange risk management purposes, charitable contributions, other administrative expenses and credit loss expense. We expect general and administrative expense to increase as we expand the number of our employees and product offerings and grow our operations.Technology and Communications Technology and communications expense consists of costs relating to software and hardware maintenance, our internal network connections, data center costs, clearance and other trading platform related transaction costs and data feeds provided by third-party service providers, including Refinitiv pursuant to a shared services agreement. Factors that influence technology and communications expense include trading volumes and our investments in innovation, data strategy and cybersecurity. Professional Fees Professional fees consist primarily of accounting, tax and legal fees and fees paid to technology and software consultants to maintain our trading platforms and infrastructure, as well as costs related to business acquisition transactions. Occupancy Occupancy expense consists of operating lease rent and related costs for office space and data centers leased inNorth America ,Europe andAsia . Tax Receivable Agreement Liability Adjustment The tax receivable agreement liability adjustment reflects changes in the tax receivable agreement liability recorded in our condensed consolidated statement of financial condition as a result of changes in the mix of earnings, tax legislation and tax rates in various jurisdictions which impacted our tax savings. There was no tax receivable agreement liability adjustment during the three months endedMarch 31, 2021 and 2020. Net Interest Income (Expense) Interest income consists of interest earned from our cash deposited with large commercial banks and money market funds. Beginning with the second quarter of 2019, interest expense consists of commitment fees payable on, and, if applicable, interest payable on any borrowings outstanding under, the Revolving Credit Facility. 38 -------------------------------------------------------------------------------- Table of Contents Income Taxes Beginning with the second quarter of 2019, we became subject toU.S. federal, state and local income taxes with respect to our taxable income, including our allocable share of any taxable income ofTWM LLC , and are taxed at prevailing corporate tax rates.TWM LLC is a multiple member limited liability company taxed as a partnership and accordingly any taxable income generated byTWM LLC is passed through to and included in the taxable income of its members, including to us. Income taxes also include unincorporated business taxes on income earned or losses incurred for conducting business in certain state and local jurisdictions, income taxes on income earned or losses incurred in foreign jurisdictions on certain operations and federal and state income taxes on income earned or losses incurred, both current and deferred, on subsidiaries that are taxed as corporations forU.S. tax purposes. Net Income Attributable to Non-Controlling Interests We are the sole manager ofTWM LLC . As a result of this control, and because we have a substantial financial interest inTWM LLC , we consolidate the financial results ofTWM LLC and report a non-controlling interest in our condensed consolidated financial statements, representing the economic interests ofTWM LLC held by the Continuing LLC Owners. Income or loss is attributed to the non-controlling interests based on the relative ownership percentages of LLC Interests held during the period by us and the Continuing LLC Owners. In connection with the Reorganization Transactions, theTWM LLC Agreement was amended and restated to, among other things, (i) provide for LLC Interests and (ii) exchange all of the then existing membership interests inTWM LLC for LLC Interests. LLC Interests held by the Continuing LLC Owners are redeemable in accordance with theTWM LLC Agreement, at the election of such holders, for newly issued shares of Class A common stock or Class B common stock, as the case may be, on a one-for-one basis. In the event of such election by a Continuing LLC Owner, we may, at our option, effect a direct exchange of Class A common stock or Class B common stock for such LLC Interests of suchContinuing LLC Owner in lieu of such redemption. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest inTWM LLC . Following the completion of the Reorganization Transactions and the IPO, we owned 64.3% ofTWM LLC and theContinuing LLC Owners owned the remaining 35.7% ofTWM LLC . As ofMarch 31, 2021 , we owned 86.8% ofTWM LLC and the Continuing LLC Owners owned the remaining 13.2% ofTWM LLC . Results of Operations For the Three Months EndedMarch 31, 2021 and Three Months EndedMarch 31, 2020 The following table sets forth a summary of our statements of income for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 $ Change % Change (dollars in thousands) Total revenue$ 273,399 $ 234,606 $ 38,793 16.5 % Total expenses 175,072 156,991 18,081 11.5 % Operating income 98,327 77,615 20,712 26.7 % Net interest income (expense) (493) 699 (1,192) (170.5) % Income before taxes 97,834 78,314 19,520 24.9 % Provision for income taxes (16,269) (15,829) (440) 2.8 % Net income 81,565 62,485 19,080 30.5 % Less: Net income attributable to non-controlling interests 13,706 18,557 (4,851) (26.1) % Net income attributable to Tradeweb Markets Inc.$ 67,859 $ 43,928 $ 23,931 54.5 % 39
-------------------------------------------------------------------------------- Table of Contents Revenues Our revenues for the three months endedMarch 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows: Three Months Ended March 31, 2021 2020 % of Total % of Total $ Revenue $ Revenue $ Change % Change (dollars in thousands) Revenues Transaction fees and commissions$ 217,816 79.7 %$ 183,317 78.1 %$ 34,499 18.8 % Subscription fees (1) 52,985 19.4 % 49,111 20.9 % 3,874 7.9 % Other 2,598 1.0 % 2,178 1.0 % 420 19.3 % Total revenue$ 273,399 100.0 %$ 234,606 100.0 %$ 38,793 16.5 % Components of total revenue growth: Constant currency growth (2) 13.9 % Foreign currency impact 2.6 % Total revenue growth 16.5 % (1)Subscription fees for the three months endedMarch 31, 2021 and 2020 include$15.1 million and$14.6 million , respectively, of Refinitiv market data fees. (2)Constant currency growth, which is a non-GAAP financial measure, is defined as total revenue growth excluding the effects of foreign currency fluctuations. Total revenue excluding the effects of foreign currency fluctuations is calculated by translating the current period and prior period's total revenue using the average exchange rates for 2020. We use constant currency growth as a supplemental metric to evaluate our underlying total revenue performance between periods by removing the impact of foreign currency fluctuations. We believe that providing constant currency growth provides a useful comparison of our total revenue performance and trends between periods. The primary driver of the$38.8 million increase in revenue related to a$34.5 million increase in transaction fees and commissions to$217.8 million for the three months endedMarch 31, 2021 from$183.3 million for the three months endedMarch 31, 2020 primarily due to increased volumes and fees forU.S. and European corporate bonds, rates derivatives products, andU.S. government bonds. Our total revenue by asset class for the three months endedMarch 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows: Three Months Ended March 31, 2021 2020 $ Change % Change (dollars in thousands) Revenues Rates$ 142,929 $ 126,039 $ 16,890 13.4 % Credit 74,368 53,978 20,390 37.8 % Equities 18,861 19,434 (573) (2.9) % Money Markets 10,818 11,208 (390) (3.5) % Market Data 19,972 18,562 1,410 7.6 % Other 6,451 5,385 1,066 19.8 % Total revenue$ 273,399 $ 234,606 $ 38,793 16.5 % 40
-------------------------------------------------------------------------------- Table of Contents Our variable and fixed revenues by asset class for the three months endedMarch 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows: Three Months Ended March 31, 2021 2020 $ Change % Change Variable Fixed Variable Fixed Variable Fixed Variable Fixed (dollars in thousands) Revenues Rates$ 89,651 $ 53,278 $ 75,541 $ 50,498 $ 14,110 $ 2,780 18.7 % 5.5 % Credit 67,998 6,370 48,575 5,403 19,423 967 40.0 % 17.9 % Equities 15,980 2,881 17,100 2,334 (1,120) 547 (6.5) % 23.4 % Money Markets 6,713 4,105 7,137 4,071 (424) 34 (5.9) % 0.8 % Market Data - 19,972 - 18,562 - 1,410 - 7.6 % Other - 6,451 - 5,385 - 1,066 - 19.8 %
Total revenue
A significant percentage of our transaction fees and commissions are tied directly to overall trading volumes in the rates, credit, equities and money markets asset classes. The average daily volumes and total volumes on our trading platforms by asset class for the three months endedMarch 31, 2021 and 2020, and the resulting percentage changes, are summarized as follows: Three Months Ended March 31, 2021 2020 ADV ADV Volume ADV Volume % Change (dollars in millions) Rates$ 665,801 $ 40,914,628 $ 590,767 $ 36,868,062 12.7 % Cash Rates 378,323 23,143,506 341,557 21,229,660 10.8 % Rates Derivatives 287,477 17,771,122 249,209 15,638,402 15.4 % Swaps / Swaptions Tenor (greater than 1 year) 182,088 11,262,405 159,508 10,013,379 14.2 % Other Rates Derivatives (1) 105,389 6,508,716 89,702 5,625,024 17.5 % Credit 27,071 1,666,070 32,996 2,070,787 (18.0) % Cash Credit (2) 10,382 632,748 7,255 449,796 43.1 % Credit Derivatives andU.S. Cash "EP" 16,690 1,033,323 25,741 1,620,991 (35.2) % Equities 16,177 995,690 17,800 1,111,733 (9.1) % Cash Equities 9,021 556,255 9,225 577,340 (2.2) % Equity Derivatives 7,155 439,435 8,576 534,392 (16.6) % Money Markets (Cash) 349,528 21,474,787 255,732 15,919,960 36.7 % Total$ 1,058,576 $ 65,051,175 $ 897,295 $ 55,970,541 18.0 % Total excluding Other Rates Derivatives (3)$ 953,187 $ 58,542,459 $ 807,593 $ 50,345,517 18.0 % (1)Includes Swaps/Swaptions of tenor less than 1 year and Rates Futures. (2)The "cash credit" category represents the "credit" asset class excluding (1) credit derivatives and (2)U.S. High Grade and High Yield electronically processed ("EP") activity. (3)Included to contextualize the impact of short-tenored Swaps/Swaptions and Rates Futures on totals for all periods presented. 41 -------------------------------------------------------------------------------- Table of Contents The average variable fees per million dollars of volume traded on our trading platforms by asset class for the three months endedMarch 31, 2021 and 2020 are summarized below. There are three potential drivers of quarterly fluctuations in our average variable fees per million: (1) volume discounts, (2) the mix and duration of cash and derivatives products traded, and (3) the mix of protocols underpinning cash and derivatives products. Average variable fees per million should be reviewed in conjunction with our trading volumes and total revenue by asset class. Since variable fees are sometimes subject to fee plans with tiered pricing based on product mix and volume, average variable fees per million for a specific asset class may not correlate with volumes or revenue growth. Three Months Ended March 31, 2021 2020 $ Change % Change Rates$ 2.19 $ 2.05 $ 0.14 6.9 % Cash Rates$ 1.91 $ 1.90 $ 0.01 0.3 % Rates Derivatives$ 2.56 $ 2.25 $ 0.31 13.9 % Swaps / Swaptions Tenor (greater than 1 year)$ 3.90 $ 3.42 $ 0.48 13.8 % Other Rates Derivatives (1)$ 0.26 $ 0.16 $ 0.10 58.6 % Credit$ 40.81 $ 23.46 $ 17.35 74.0 % Cash Credit (2)$ 135.45 $ 132.79 $ 2.66 2.0 %
Credit Derivatives and
$ 0.15 2.4 % Equities$ 16.05 $ 15.38 $ 0.67 4.3 % Cash Equities$ 23.63 $ 23.88 $ (0.25) (1.1) % Equity Derivatives$ 6.46 $ 6.20 $ 0.26 4.2 % Money Markets (Cash)$ 0.31 $ 0.45 $ (0.14) (30.3) % Total Fees per Million$ 2.77 $ 2.65 $ 0.12 4.6 % Total Fees per Million excluding Other Rates Derivatives (3)$ 3.05 $ 2.93 $ 0.12 4.2 % (1)Includes Swaps/Swaptions of tenor less than 1 year and Rates Futures. (2)The "cash credit" category represents the "credit" asset class excluding (1) credit derivatives and (2)U.S. High Grade and High Yield electronically processed ("EP") activity. (3)Included to contextualize the impact of short-tenored Swaps/Swaptions and Rates Futures on blended fees per million across all periods presented. The key drivers of the change in total revenue, volumes and variable fees per million by asset class are summarized as follows: Rates. Revenues from our rates asset class increased by$16.9 million or 13.4% to$142.9 million for the three months endedMarch 31, 2021 compared to$126.0 million for the three months endedMarch 31, 2020 primarily due to variable transaction fees and commissions earned on higher trading volumes for rates derivatives products,U.S. and European government bonds and mortgages. Average variable fees per million for rates increased due to growth of higher fee long-tenor swaps volumes, which have a higher variable fee capture compared to overall rates. Credit. Revenues from our credit asset class increased by$20.4 million or 37.8% to$74.4 million for the three months endedMarch 31, 2021 compared to$54.0 million for the three months endedMarch 31, 2020 primarily due to variable transaction fees and commissions on higher trading volumes forU.S. and European corporate bonds which were partially offset by lower credit derivatives volumes during the three months endedMarch 31, 2021 . Credit derivatives experienced an all-time high in volumes during the three months endedMarch 31, 2020 . Average variable fees per million for credit increased due to higher growth in volume for fully electronic High Grade and High Yield cash credit products and European credit products, which have a higher variable fee capture compared to credit derivatives which, as noted above, experienced a decline in trading volume period over period. 42 -------------------------------------------------------------------------------- Table of Contents Equities. Revenues from our equities asset class decreased by$0.6 million or 2.9% to$18.9 million for the three months endedMarch 31, 2021 compared to$19.4 million for the three months endedMarch 31, 2020 . Variable transaction fees and commissions on higher trading volumes for European ETFs were offset by lower trading volumes for wholesale equity products. Average variable fees per million for equities increased due to higher growth in European ETFs and convertibles volume, which have a higher variable fee capture compared to overall equity derivative products. Money Markets. Revenues from our money markets asset class decreased by$0.4 million or 3.5% to$10.8 million for the three months endedMarch 31, 2021 compared to$11.2 million for the three months endedMarch 31, 2020 . Average daily volumes for money markets increased by 36.7%, primarily driven by a 41.7% increase in trading volumes for repurchase agreements while average variable fees per million for money markets decreased due to a mix shift to lower fee per million repurchase agreements and away from higher fee certificates of deposit. Market Data. Revenues from our market data asset class increased by$1.4 million or 7.6% to$20.0 million for the three months endedMarch 31, 2021 compared to$18.6 million for the three months endedMarch 31, 2020 . The increase was derived primarily from increased Refinitiv license fees due to an increase in the number of market data feeds provided to Refinitiv. Other. Revenues from our other asset class increased by$1.1 million or 19.8%, to$6.5 million for the three months endedMarch 31, 2020 compared to$5.4 million for the three months endedMarch 31, 2020 primarily due to higher fixed retail fees. We generate revenue from a diverse portfolio of client sectors. Our total revenue by client sector for the three months endedMarch 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows: Three Months Ended March 31, 2021 2020 $ Change % Change (dollars in thousands) Revenues Institutional$ 175,324 $ 145,612 $ 29,712 20.4 % Wholesale 59,390 48,756 10,634 21.8 % Retail 18,713 21,676 (2,963) (13.7) % Market Data 19,972 18,562 1,410 7.6 % Total revenue$ 273,399 $ 234,606 $ 38,793 16.5 % Institutional. Revenues from our Institutional client sector increased by$29.7 million or 20.4% to$175.3 million for the three months endedMarch 31, 2021 from$145.6 million for the three months endedMarch 31, 2020 . The increase was derived primarily from increased volumes forU.S. and European corporate bonds, rates derivatives products,U.S. government bonds, mortgages and repurchase agreements. Wholesale. Revenues from our Wholesale client sector increased by$10.6 million or 21.8% to$59.4 million for the three months endedMarch 31, 2021 from$48.8 million for the three months endedMarch 31, 2020 . The increase was derived primarily from increased volumes forU.S. and European corporate bonds andU.S. government bonds. Retail. Revenues from our Retail client sector decreased by$3.0 million or 13.7% to$18.7 million for the three months endedMarch 31, 2021 from$21.7 million for the three months endedMarch 31, 2020 . The decrease was derived primarily from lower volumes from certificates of deposit andU.S. corporate bonds, partially offset by increased fees from our portfolio solutions tool, as well as software development and implementation revenue on behalf of certain clients. Market Data. Revenues from our Market Data client sector increased by$1.4 million or 7.6% to$20.0 million for the three months endedMarch 31, 2021 from$18.6 million for the three months endedMarch 31, 2020 . The increase was derived primarily from increased Refinitiv license fees due to an increase in the number of market data feeds provided to Refinitiv. 43 -------------------------------------------------------------------------------- Table of Contents Our revenues and client base are also diversified by geography. Our total revenue by geography (based on client location) for the three months endedMarch 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows: Three Months Ended March 31, 2021 2020 $ Change % Change (dollars in thousands) Revenues U.S.$ 167,736 $ 145,256 $ 22,480 15.5 % International 105,663 89,350 16,313 18.3 % Total revenue$ 273,399 $ 234,606 $ 38,793 16.5 %U.S. Revenues fromU.S. clients increased by$22.5 million or 15.5% to$167.7 million for the three months endedMarch 31, 2021 from$145.3 million for the three months endedMarch 31, 2020 primarily due to higher revenues forU.S. corporate bonds, mortgages,U.S. government bonds and rates derivatives products. International. Revenues from International clients increased by$16.3 million or 18.3% to$105.7 million for the three months endedMarch 31, 2021 from$89.4 million for the three months endedMarch 31, 2020 primarily due to higher revenues for rates derivatives products, European corporate bonds, and ETFs. Fluctuations in foreign currency rates for the three months endedMarch 31, 2021 increased our International total revenue by$3.8 million . Operating Expenses Our expenses for the three months endedMarch 31, 2021 and 2020 were as follows: Three Months Ended March 31, 2021 2020 $ Change % Change (dollars in thousands) Employee compensation and benefits$ 103,622 $ 90,520 $ 13,102 14.5 % Depreciation and amortization 40,966 37,176 3,790 10.2 % Technology and communications 13,544 10,318 3,226 31.3 % General and administrative 3,459 8,340 (4,881) (58.5) % Professional fees 9,728 6,911 2,817 40.8 % Occupancy 3,753 3,726 27 0.7 % Total expenses$ 175,072 $ 156,991 $ 18,081 11.5 % Employee Compensation and Benefits. Employee compensation and benefits expense increased by$13.1 million or 14.5% to$103.6 million for the three months endedMarch 31, 2021 from$90.5 million for the three months endedMarch 31, 2020 . The increase was primarily due to increases in salaries and benefits as a result of increased employee headcount, incentive compensation expenses tied to operating performance and an increase in non-cash stock-based compensation expense and associated payroll taxes. Depreciation and Amortization. Depreciation and amortization expense increased by$3.8 million or 10.2% to$41.0 million for the three months endedMarch 31, 2021 from$37.2 million for the three months endedMarch 31, 2020 . The increase in depreciation and amortization expense was the result of the longer estimated useful lives of computer software and the adjusted fair value of the assets that were established in connection with pushdown accounting onOctober 1, 2018 (see "-Critical Accounting Policies and Estimates"). Assets which may have been fully depreciated or amortized prior to the application of pushdown accounting are still being depreciated or amortized in these periods.Technology and Communications . Technology and communications expense increased by$3.2 million or 31.3% to$13.5 million for the three months endedMarch 31, 2021 from$10.3 million for the three months endedMarch 31, 2020 . The increase was primarily due to an increased investment in our data strategy and cybersecurity and increased clearance and data fees driven primarily by higher trading volumes period over period. 44 -------------------------------------------------------------------------------- Table of Contents General and Administrative. General and administrative expense decreased by$4.9 million or 58.5% to$3.5 million for the three months endedMarch 31, 2021 from$8.3 million for the three months endedMarch 31, 2020 . The decrease was primarily due to higher foreign exchange gains during the three months endedMarch 31, 2021 , which reduced the net expense during the period, and lower travel and entertainment expenses, primarily due to the impact of COVID-19. Professional Fees. Professional fees increased by$2.8 million or 40.8% to$9.7 million for the three months endedMarch 31, 2021 from$6.9 million for the three months endedMarch 31, 2020 . The increase was primarily due to acquisition transaction costs related to the announced acquisition of Nasdaq'sU.S. fixed income electronic trading platform (formerly known as eSpeed) and higher consulting fees. Occupancy. Occupancy expense remained flat at$3.8 million for the three months endedMarch 31, 2021 . Net Interest Income (Expense) Net interest income (expense) decreased by$1.2 million to net interest expense of$0.5 million for the three months endedMarch 31, 2021 from net interest income of$0.7 million for the three months endedMarch 31, 2020 due to a decrease in interest rates. Income Taxes Income tax expense increased by$0.4 million to$16.3 million for the three months endedMarch 31, 2021 from$15.8 million for the three months endedMarch 31, 2020 . The provision for income taxes includesU.S. federal, state, local, and foreign taxes. The effective tax rate for the three months endedMarch 31, 2021 was approximately 16.6%, compared with 20.2% for the three months endedMarch 31, 2020 . The effective tax rate for the three months endedMarch 31, 2021 and 2020 differed from theU.S. federal statutory rate of 21.0% primarily due to the effect of non-controlling interests and the tax impact of the issuance of common stock from equity incentive plans, partially offset by state, local, and foreign taxes. Liquidity and Capital Resources Overview Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs to meet operating expenses, debt service, acquisitions, other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and availability under the Revolving Credit Facility and their sufficiency to fund our operating and investing activities. Historically, we have generated significant cash flows from operations and have funded our business operations through cash on hand and cash flows from operations. Our primary cash needs are for day to day operations, working capital requirements, capital expenditures, primarily for software and equipment, our expected dividend payments, and our recently announced share repurchase program. In addition, we are obligated to make payments under the Tax Receivable Agreement. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we will be required to make under the Tax Receivable Agreement will be significant. Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flows that might have otherwise been available to us or toTWM LLC . These payments will offset some of the tax benefits that we expect to realize as a result of the ownership structure ofTWM LLC . To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us. Total amounts due to the Continuing LLC Owners as ofMarch 31, 2021 under the Tax Receivable Agreement were$425.2 million , substantially all due to be paid over 15 years. The first payment of the Tax Receivable Agreement was made inJanuary 2021 . We expect to fund our liquidity requirements through cash and cash equivalents and cash flows from operations. While historically we have generated significant and adequate cash flows from operations, in the case of an unexpected event in the future or otherwise, we may fund our liquidity requirements through borrowings under the Revolving Credit Facility. 45 -------------------------------------------------------------------------------- Table of Contents We believe that our projected cash position, cash flows from operations and, if necessary, borrowings under the Revolving Credit Facility, will be sufficient to fund our liquidity requirements for at least the next 12 months. However, our future liquidity requirements could be higher than we currently expect as a result of various factors. For example, any future investments, acquisitions, joint ventures or other similar transactions, which we consider from time to time, may require additional capital. In addition, our ability to continue to meet our future liquidity requirements will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flows from operations and our ability to manage costs and working capital successfully, all of which are subject to general economic, financial, competitive and other factors beyond our control. In the event we require any additional capital, it will take the form of equity or debt financing, or both, and there can be no assurance that we will be able to raise any such financing on terms acceptable to us or at all. As ofMarch 31, 2021 andDecember 31, 2020 , we had cash and cash equivalents of approximately$809.9 million and$791.3 million , respectively. All cash and cash equivalents were held in accounts with banks or money market funds such that the funds are immediately available or in fixed term deposits with a maximum maturity of three months. Factors Influencing Our Liquidity and Capital Resources Dividend Policy Subject to legally available funds, we intend to continue to pay quarterly cash dividends on our Class A common stock and Class B common stock equal to$0.08 per share. As discussed below, our ability to pay these quarterly cash dividends on our Class A common stock and Class B common stock will depend on distributions to us fromTWM LLC . The declaration, amount and payment of any dividends will be at the sole discretion of our board of directors and will depend on our and our subsidiaries' results of operations, capital requirements, financial condition, business prospects, contractual restrictions, restrictions imposed by applicable laws and other factors that our board of directors deem relevant. Because we are a holding company and all of our business is conducted through our subsidiaries, we expect to pay dividends, if any, only from funds we receive from our subsidiaries. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries. As the sole manager ofTWM LLC , we intend to cause, and will rely on,TWM LLC to make distributions in respect of LLC Interests to fund our dividends. IfTWM LLC is unable to cause these subsidiaries to make distributions, it may have inadequate funds to distribute to us and we may be unable to fund our dividends. In addition, whenTWM LLC makes distributions to us, the other holders of LLC Interests will be entitled to receive proportionate distributions based on their economic interests inTWM LLC at the time of such distributions. Our board of directors will periodically review the cash generated from our business and the capital expenditures required to finance our growth plans and determine whether to modify the amount of regular dividends and/or declare any periodic special dividends. Any future determination to change the amount of dividends and/or declare special dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions and other factors that our board of directors considers relevant. Cash Dividends OnApril 28, 2021 , the board of directors ofTradeweb Markets Inc. declared a cash dividend of$0.08 per share of Class A common stock and Class B common stock for the second quarter of 2021. This dividend will be payable onJune 15, 2021 to stockholders of record as ofJune 1, 2021 . InMarch 2021 ,Tradeweb Markets Inc. paid quarterly cash dividends to holders of Class A common stock and Class B common stock in an aggregate amount of$16.0 million . Cash Distributions OnApril 27, 2021 ,Tradeweb Markets Inc. , as the sole manager, approved a distribution byTWM LLC to its equityholders, includingTradeweb Markets Inc. , in an aggregate amount of$15.0 million , as adjusted by required state and local tax withholdings that will be determined prior to the record date ofJune 1, 2021 , payable onJune 11, 2021 . InMarch 2021 ,TWM LLC made a quarterly cash distribution to its equityholders in an aggregate amount of$18.8 million , including distributions toTradeweb Markets Inc. of$16.3 million and distributions to non-controlling interests of$2.5 million . The proceeds of the cash distributions were used byTradeweb Markets Inc. to fund dividend payments, taxes and expenses. 46 -------------------------------------------------------------------------------- Table of Contents Share Repurchase Program OnFebruary 4, 2021 , we announced that our board of directors authorized a new share repurchase program (the "Share Repurchase Program"), primarily to offset annual dilution from stock-based compensation plans. The Share Repurchase Program authorizes the purchase of up to$150.0 million of our Class A common stock at the Company's discretion through the end of fiscal year 2023. The Share Repurchase Program will be effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1). The amounts and timing of the repurchases will be subject to general market conditions and the prevailing price and trading volumes of our Class A common stock. The Share Repurchase Program does not require the Company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. No share repurchases were made pursuant to the Share Repurchase Program during the three months endedMarch 31, 2021 . Other Share Repurchases In addition to the Share Repurchase Program discussed above, we may also withhold shares to cover the payroll tax withholding obligations upon the exercise of stock options and vesting of restricted stock units. During the three months endedMarch 31, 2021 and 2020, the Company withheld 696,847 and 515,145 shares, respectively of common stock from employee stock option, PRSU and RSU awards, at an average price per share of$65.24 and$46.57 , respectively and an aggregate value of$45.5 million and$24.0 million , respectively based on the price of the Class A common stock on the date the relevant withholding occurred. Indebtedness As ofMarch 31, 2021 andDecember 31, 2020 , we had no outstanding indebtedness. OnApril 8, 2019 ,TWM LLC entered into the Revolving Credit Facility with a syndicate of banks. The Credit Facility was subsequently amended onNovember 7, 2019 . The Revolving Credit Facility provides borrowing capacity to be used to fund our ongoing working capital needs, letters of credit and for general corporate purposes, including potential future acquisitions and expansions.TWM LLC is the borrower under the Revolving Credit Facility. The Revolving Credit Facility permits borrowings of up to$500.0 million byTWM LLC . Subject to the satisfaction of certain conditions, we will be able to increase the Revolving Credit Facility by$250.0 million with the consent of lenders participating in the increase. The Revolving Credit Facility provides for the issuance of up to$5.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to$30.0 million . The Revolving Credit Facility will mature onApril 8, 2024 . As ofMarch 31, 2021 , there were$0.5 million in letters of credit issued under the Revolving Credit Facility and no drawn amounts outstanding. Under the terms of the credit agreement that governs the Revolving Credit Facility, borrowings under the Revolving Credit Facility bear interest at a rate equal to, at our option, either (a) a base rate equal to the greatest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus ½ of 1.0% and (iii) one month LIBOR plus 1.0%, in each case plus 0.75%, or (b) LIBOR plus 1.75%, subject to a 0.00% floor. The credit agreement also requires that we pay a commitment fee of 0.25% for available but unborrowed amounts. We are also required to pay customary letter of credit fees and agency fees. We have the option to voluntarily repay outstanding loans at any time without premium or penalty other than customary "breakage" costs with respect to LIBOR loans. There will be no scheduled amortization under the Revolving Credit Facility. The principal amount outstanding will be due and payable in full at maturity. Obligations under the Revolving Credit Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions. The Revolving Credit Facility is secured by a first-priority security interest in substantially all of the assets ofTWM LLC and the guarantors under the facility, subject to certain exceptions. 47 -------------------------------------------------------------------------------- Table of Contents The credit agreement that governs the Revolving Credit Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict the ability ofTWM LLC and the ability of its restricted subsidiaries to: •incur additional indebtedness and guarantee indebtedness; •create or incur liens; •pay dividends and distributions or repurchase capital stock; •make investments, loans and advances; and •enter into certain transactions with affiliates. The Revolving Credit Facility contains a financial covenant requiring compliance with a (i) maximum total net leverage ratio tested on the last day of each fiscal quarter not to exceed 3.5 to 1.0 (increasing to 4.0 to 1.0 for the four-quarter period following a material acquisition and the fiscal quarter in which such material acquisition is consummated) and (ii) minimum cash interest coverage ratio tested on the last day of each fiscal quarter not less than 3.0 to 1.0. The credit agreement that governs the Revolving Credit Facility also contains certain affirmative covenants and events of default customary for facilities of this type, including relating to a change of control. If an event of default occurs, the lenders under the Revolving Credit Facility will be entitled to take various actions, including the acceleration of amounts due under the Revolving Credit Facility and all actions permitted to be taken by secured creditors under applicable law. As ofMarch 31, 2021 , we were in compliance with all the covenants set forth in the Revolving Credit Facility. Capital Requirements Certain of ourU.S. subsidiaries are registered as broker-dealers, SEFs or introducing brokers and are subject to the applicable rules and regulations of theSEC and CFTC. These rules contain minimum net capital or other financial resource requirements, as defined in the applicable regulations. These rules may also require a significant part of the registrants' assets be kept in relatively liquid form. Certain of our foreign subsidiaries are regulated by theFinancial Conduct Authority in theUK , theNederlandsche Bank inthe Netherlands , theJapanese Financial Services Agency , theJapanese Securities Dealers Association and other foreign regulators, and must maintain financial resources, as defined in the applicable regulations, in excess of the applicable financial resources requirement. As ofMarch 31, 2021 andDecember 31, 2020 , each of our regulated subsidiaries had maintained sufficient net capital or financial resources to at least satisfy their minimum requirements which in aggregate were$64.0 million and$65.1 million , respectively. We maintain capital balances in these subsidiaries in excess of our minimum requirements in order to satisfy working capital needs and to ensure that we have enough cash on hand to satisfy margin requirements and credit risk, including the excess capital expectations of our clients. Fails to Deliver/Fails to Receive At times, transactions executed on our wholesale platform fail to settle due to the inability of a transaction party to deliver or receive the transacted security. Until the failed transaction settles, we will recognize a receivable from (and a matching payable to) brokers and dealers and clearing organizations for the proceeds from the unsettled transaction. The impact on our liquidity and capital resources is minimal as receivables and payables for failed transactions are usually recognized simultaneously and predominantly offset. Working Capital Working capital is defined as current assets minus current liabilities. Current assets consist of cash and cash equivalents, restricted cash, receivable from brokers and dealers and clearing organizations, deposits with clearing organizations, accounts receivable and receivable from affiliates. Current liabilities consist of payable to brokers and dealers and clearing organizations, accrued compensation, deferred revenue, accounts payable, accrued expenses and other liabilities, employee equity compensation payable, lease liability, payable to affiliates and tax receivable agreement liability. Changes in working capital, which impact our cash flows provided by operating activities, can vary depending on factors such as delays in the collection of receivables, changes in our operating performance, changes in trading patterns, changes in client billing terms and other changes in the demand for our platforms and solutions. 48
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Table of Contents Our working capital as ofMarch 31, 2021 andDecember 31, 2020 was as follows: December 31, March 31, 2021 2020 (in thousands) Cash and cash equivalents$ 809,938 $ 791,280 Restricted cash 1,000 1,000 Receivable from brokers and dealers and clearing organizations 25,362 368 Deposits with clearing organizations 10,783 11,671 Accounts receivable 144,494 105,286 Receivable from affiliates 2,527 111 Total current assets 994,104 909,716 Payable to brokers and dealers and clearing organizations 25,145 252 Accrued compensation 70,202 129,288 Deferred revenue 27,186 23,193 Accounts payable, accrued expenses and other liabilities 43,671 42,077 Employee equity compensation payable - 1,900 Lease liability 9,237 10,813 Payable to affiliates 1,816 5,142 Tax receivable agreement liability 9,983 16,832 Total current liabilities 187,240 229,497 Total working capital$ 806,864 $ 680,219 Current Assets Current assets increased to$994.1 million as ofMarch 31, 2021 from$909.7 million as ofDecember 31, 2020 primarily due to an increase in cash and cash equivalents and accounts receivable as a result of increased revenues and earnings and due to an increase in receivables from brokers and dealers and clearing organizations resulting from a higher number of fails to deliver as a result of increased unsettled wholesale platform transactions. Current Liabilities Current liabilities decreased to$187.2 million as ofMarch 31, 2021 from$229.5 million as ofDecember 31, 2020 primarily due to a decrease in accrued compensation as a result of annual bonus payments which occurred during the three months endedMarch 31, 2021 , partially offset by an increase in payable to brokers and dealers and clearing organizations resulting from a higher number of fails to deliver as a result of increased unsettled wholesale platform transactions. See "-Liquidity and Capital Resources-Factors Influencing Our Liquidity and Capital Resources-Capital Requirements" for a discussion on how capital requirements can impact our working capital. Cash Flows Our cash flows for the three months endedMarch 31, 2021 and 2020 were as follows:
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